When you apply for a mortgage, the lender pulls what’s called a hard inquiry on your credit. In other words, anyone else that views your credit will know that you applied for a mortgage. But what happens if you want to apply with several lenders to get the best rate or you want to see if you might qualify for a loan, but aren’t quite ready?
There are a few ways you can minimize the hit that your credit score takes. We discuss the options below.
Minimizing the Hit to Your Credit Score
If you apply for a mortgage with one lender and are unhappy with the results or you think you can get a lower rate, you may want to shop around for other lenders. Our one piece of advice is to do it quickly. Typically, any mortgage inquires on your credit report within the next two weeks will not damage your credit score further. The credit bureaus count it as one inquiry because they can recognize that you are shopping around for a better rate.
If you spread your loan shopping out over a longer period, it may hurt your score, but not as much as you might think. If you take say 3 months to shop for a loan and you apply with many lenders along the way, the credit bureaus will only count the inquiries in the most recent 30 days when they calculate your score. While it’s not recommended to stretch your loan shopping out over that long of a period, it can be done without killing your credit score.
Buyers That Aren’t Quite Ready
You might be a buyer that is thinking about buying a home but isn’t quite ready to jump ship just yet. If you are in the pre-qualification mode, meaning you are just trying to test the waters and see how much loan you might be able to get, ask a lender for a pre-qualification. This won’t hurt your credit at all. In fact, lenders won’t even know that you took this step.
The pre-qualification stage only offers an estimate of what you can afford. It’s not any type of approval. Lenders don’t look at your paystubs, assets, or even your credit report. Instead, they go off the information you provide them. You tell the lender how much you make, what debts you have, and an estimated credit score. They use this information to give you a ballpark figure of what you would qualify for on a mortgage loan.
While it’s nothing concrete, it can give you an idea of where you might be at this point. If you don’t like the answer, you can wait until you make more money, have a higher credit score, or have a higher down payment. The benefit, though, is that it never damaged your credit score.
It is possible to shop for a mortgage without hurting your credit score. Even if you do shop for a mortgage and let them pull your credit, do it within a timeframe that it will cause minimal damage to your credit score.